Is MidWestOne Financial Group, Inc. (NASDAQ:MOFG) At Risk Of Cutting Its Dividend?

Is MidWestOne Financial Group, Inc. (NASDAQ:MOFG) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A high yield and a long history of paying dividends is an appealing combination for MidWestOne Financial Group. We'd guess that plenty of investors have purchased it for the income. The company also bought back stock during the year, equivalent to approximately 0.9% of the company's market capitalisation at the time. That said, the recent jump in the share price will make MidWestOne Financial Group's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding MidWestOne Financial Group for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on MidWestOne Financial Group!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, MidWestOne Financial Group paid out 424% of its profit as dividends. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We update our data on MidWestOne Financial Group every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. MidWestOne Financial Group has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was US$0.2 in 2010, compared to US$0.9 last year. Dividends per share have grown at approximately 16% per year over this time.

Dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Over the past five years, it looks as though MidWestOne Financial Group's EPS have declined at around 38% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and MidWestOne Financial Group's earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, it's not great to see how much of its earnings are being paid as dividends. Moreover, earnings have been shrinking. While the dividends have been fairly steady, we'd wonder for how much longer this will be sustainable if earnings continue to decline. With this information in mind, we think MidWestOne Financial Group may not be an ideal dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 4 warning signs for MidWestOne Financial Group that investors should know about before committing capital to this stock.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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